In what could be a rude shock to telcos, the department of economic affairs (DEA) had told department of telecom (DoT) that the communications ministrys proposed increase in spectrum fee is too low. The DEA has asked DoT to hike the spectrum fee even further and impose flat rates across circles, which is against the current policy where the spectrum fee is based on the quantum of the radio frequencies held by the telco.

The DEA has sought that the DoT change spectrum usage charges levied on telecom companies to a fixed percentage of revenues for each category of circles (licensed service areas congruent with metros and states in the case of the major states). At present, the percentage of revenues payable as spectrum usage charges varies with the quantum of spectrum allotted to a telco, regardless of the category of circle in which the telco operates. The basis for allocation of spectrum would continue to be the number of subscribers accumulated by a telco.

The DEA wants spectrum usage charges to be based on the licence-fee model, where telcos pay a stipulated share of the revenue based on the circle of operation. Telcos pay 10% of their revenues as licence fee in metros and category A circles, 8% in category B and 6% in category C circles.

On a similar basis, the DEA wants telcos to pay a flat 8% of their revenues as spectrum fees for all the four metros and in the eight category A circles, 6% in all the category B circles and 4% in the category C circles. The DEA proposal if accepted by the DoT, the will the hike the governments collection from spectrum fees by several thousand crores.

At present, if a service provider has 4.4 MHz of spectrum in any circle, the operator must share 2% of their revenues with the government towards spectrum usage charges. For 6.2 MHz of radio frequencies, the spectrum charge is 3% of the total revenues, for 8 MHz and 10 MHz it is 4% and for 12.5 MHz it is 5%. In case any telco gets 15 MHz of radio frequency per circle, it must pay 6% of its revenues towards spectrum charges.

However, the DoT has proposed that this be hiked significantlyas per the departments proposed model, it wanted to hike the spectrum charges to 3% of the companys revenues if the firm held radio frequencies of up to 4.4 MHz, to 4% for allotments between 4.4-6.2 MHz, to 5% if telcos have between 6.2-7.2 MHz of radio frequencies, 6% for 8.2-9.2 MHz, 6.5% for 9.2-10.2 MHz, 7% for 10.2-11.2 MHz and 7.5% for allotments between 11.2-12.2 MHz.

The DoTs proposed charges were higher than those recommended by sector regulator Trai, which in August 2007 had proposed that spectrum charges be increased to 5% of the total revenues for up to 10 MHz of radio frequencies, 6% for 12.5 MHz, 7% for 15 MHz and 8% for if an operator held more than 15 MHz in any circle. The DEAs model is even higher than the DoTs formula.